Supply chain issues drive rare earth economics

Access to rare earths needs to be addressed at all points in the supply chain, experts say. Credit: The Bulletin, ACerS.

In March the US, Japan and European Union filed a complaint with the World Trade Organization against China contending that its export rules violate international trade rules. At present, China controls about 95 percent of the global supply of rare earth metals. According to a Voice of America article, President Obama “is pursuing the trade complaint so American companies can compete fairly against foreign business in the production of goods that require the use of the rare earths.”

The interesting thing is that the US does not have a rare earth industry, strictly speaking, according Jeffrey Green in an interview last week with The Gold Report. Green is founder of J.A. Green & Company, a consulting and strategic planning serving the US industrial base. Green explained, “The US imports components and end products containing rare earths rather than the metals themselves in most industries. … The reality is that US demand appears low only because we’re importing the products that already contain them.”

He cautions that discussions of rare earth shortages can be misleading because the supply and demand of the individual rare earth metals are not the same. The so-called light rare earths, lanthanum and cerium, for example, are plentiful, while heavy rare earths like dysprosium and yttrium are less abundant, and supplies are more likely to fall short. Also, at the federal level, a broad view of the problem is missing because of what Green calls “stovepipes of activity,” where each agency evaluates its vulnerability only in terms of its own interests.

Green explained in the interview that the rare earth supply chain actually is comprised of four or five industries: mining, ore processing, metal production, alloy production and magnet/component production. He says Washington policy makers believe “the free market will sort this supply chain out. They fail to look deeper at what the supply chain looks like. …Washington needs to realize that all roads lead to China.”

China’s near-monopoly on RE supplies and its two-tiered pricing structure has consequences that ripple through the entire supply chain for RE magnets. The two-tiered pricing system offers favorable terms that incentivize moving production to China, where access to REs is not restricted by export quotas and where the “inside” price is up to 25 percent less. As a result, Green expects to see more processors, alloy makers and magnet manufacturers move their operations to China. Eventually, he predicts, magnet users will move to China, which would mean an economic loss to the US, open a vulnerability for defense applications and lead to “IP leakage.”

The announcement by Molycorp that it is reopening its Mountain Pass RE mine has taken the edge of the urgency in the Capitol to develop a comprehensive policy toward RE supplies. The Mountain Pass project is expected to begin producing by the end of this year. A online story at Resource Investing News says the mine is expected to have a lifespan of about 30 years. Mostly, it will produce lanthanum, cerium, neodymium and praseodymium, although the company expected to be able to produce “commercially significant quantities” of the heavy REs, including europium, terbium, dysprosium and yttrium.

However, Green points out that part of Molycorp’s supply chain is “inherently tied to some of the intellectual property and production facilities in China,” and, according to him, the company is planning to export 7-12 percent of its production capacity to China. Because China changes its export quotas every year, he says one big question is whether Molycorp has been able to negotiate long-term agreements with China to get its US natural resources back out of China.

Green outlines a few ways the WTO case might resolve. Least likely is that China would change its current policies. China might drop its two-tier pricing, but China is expected to be a net importer of REs by 2015, which would remove any excess from the marketplace. Another possibility is that it might restructure its export quota system to allow more liberal export of the relatively plentiful light REs, while restricting heavy RE exports. Finally, China may simply refuse to comply if the case is decided against them.

Green argues that reestablishing a RE industry in the US will be difficult because the domestic demand for REs is not stable, and won’t be until there are companies that buy the material. He says, “To successfully reestablish a rare earth industry, we have to capture each stage of the supply chain, working back incrementally.”

Are there non-Chinese sources of RE? Yes: Last week we reported on a newly discovered deposit in Brazil. Green said there are about 400 publicly traded rare earth companies (although he’s confident they won’t all survive). Geology professor, Frances Wall (University of Exeter, Cornwall, UK), says “Don’t stop using rare earths.” In an article in Materials Today, she strives to assure materials scientists that there are plenty of rare earths out there. “It is just a matter of patience (please) whilst the challenges of developing new deposits are overcome.”

Wall says there are over 800 potential deposits to consider, but Wall echoes Green’s comments that the economics of development cannot compete with Chinese prices. She cites four significant challenges to developing new sources.

Most known RE deposits are rich in lanthanum and cerium (as plentiful as copper). Heavy REs are much more difficult to find.

REs do not form minerals, making the process metallurgy very complex.

Thorium and uranium, both radioactive, tend to substitute into rare earth minerals, increasing the complexity of processing.

Some of the new deposits have minerals that have never been used before. All new beneficiation and extraction processes need to be developed.

These are nontrivial challenges, and Wall is basically issuing a call-to-action for her fellow geologists to “pay more geological attention to a wider range of elements.” Her closing statement, however, repeats Green’s message, “Support is coming,” she says, “from higher up in the supply chain, with more vertical integration from mines to manufacturers, encouraging links from geologists through to materials scientists.”